The Federal Reserve’s widely anticipated decision to maintain the federal funds rate at 3.5 percent–3.75 percent on its first policy-setting meeting of the year further exposed the already apparent divide among some of its voting members.
Fed Govs. Stephen Miran and Christopher Waller represented the two dissenting votes in the Federal Open Market Committee’s (FOMC) decision to pause the rate cuts after three consecutive quarter‑point cuts late last year.
Fed Chairman Jerome Powell said the agency will be making plans for future rate cuts and other quantitative easing activities on a meeting-by-meeting basis. He said there was “broad” support for holding rates steady during the on Jan. 28 meeting.
Powell explained that the Fed removed language about labor demand and employment out of the FOMC’s implementation statement to account for “distortions in the data from the [government] shutdown.” Whereas previous statements said the Fed judged that “downside risk to employment rose in recent months,” the updated version indicated that employment had largely stabilized. However, he also acknowledged the presence of some “tension” between employment and inflation that the committee is monitoring.
He acknowledged that the Fed’s assessment of the labor market came despite elevated inflation and relatively low job gains. He acknowledged that a weakening labor market could necessitate further rate cuts moving forward while stressing that such a move must also account for the inflationary consequences, per the Fed’s dual mandate.
Powell declined to answer questions about why he attended the Supreme Court hearing over mortgage fraud allegations against Fed Gov. Lisa Cook or the investigation launched by the Department of Justice into his Senate testimony regarding renovations to the Fed’s Washington, D.C., headquarters.
However, he did offer several words about the concerns these legal matters have raised about the Fed’s independence. He asserted maintaining its independence is important for the sake of maintaining the agency’s credibility with the public and the economy in the U.S. and beyond.
“If people lose the faith that we are making decisions only on the basis of our assessment of what is best for everyone – for the wider public – rather than trying to benefit one group or another, if you lose that, it is going to be hard to regain it,” he said. “And we haven’t lost it. I don’t believe we will. I certainly hope we won’t, but it is very important. The reason it is important is it has enabled central banks generally not to be perfect, but to serve the public well.”
He also declined to comment on questions about his interest in remaining a member of the Fed Board after his term as chairman expires on May 15. His term as a board member is set to run until Jan. 31, 2028.
Dodd Frank Update consulted First American Senior Economist Sam Williamson about the housing market implications, specifically regarding its stance on easing its monetary policy and the expected impact to affordability.